FCA to Launch Motor Finance Customer Compensation Scheme Consultation

Summary of FCA Statement on Motor Finance redress Scheme (as of September 26, 2024)

here’s a breakdown of the key takeaways from the FCA statement:

1. Redress Scheme is Coming: The FCA is developing a redress scheme to compensate consumers who may have been unfairly charged due to commission practices in motor finance agreements.

2. Potential Cost:
The scheme is expected to cost at least £9 billion, adn perhaps significantly more (up to £18 billion, though the FCA considers this less likely).
Most individuals are expected to receive less than £950 in compensation per agreement.

3. Scheme Details (Still Under Development): The FCA is still working out the specifics of the scheme, including:
The eligibility criteria.
The uplift rate (how much commission will be factored into compensation).
The methodology for calculating redress.
The balance between discretionary and non-discretionary elements.

4. Impact on Market: The FCA believes a healthy motor finance market will continue despite the scheme. They will provide more detailed analysis in their consultation.

5. Advice to Firms:
Compliance is Key: Firms must adhere to laws and FCA rules, including the Consumer Duty.
Refresh Estimates: Firms need to update their estimates of potential liabilities (compensation and administrative costs) and increase provisions if necessary.
Disclosure: Listed firms must keep the market informed. Complaints Deadline: The deadline for responding to relevant complaints is currently December 4, 2025, and the FCA is considering extending this further.

6. Advice to Consumers:
If you’ve already complained, do nothing.
If you’re concerned,complain now.
Avoid Claims Management Companies (CMCs): The FCA encourages consumers to participate directly in the scheme to avoid fees of up to 30% charged by CMCs. They are actively regulating CMCs and taking action against misleading promotions.
The scheme will be designed to be easy to use without needing legal representation.

7. Next Steps:
Consultation: The FCA aims to publish a consultation on the scheme details in early October, open for 6 weeks.
No Final Decisions: No final decisions have been made yet.

In essence,the FCA is preparing for a large-scale redress scheme,acknowledging significant potential costs,and providing guidance to both firms and consumers while finalizing the details.

Will the FCA’s proposed scheme cover all motor finance agreements taken out between January 2010 and the present day,or will there be specific exclusions?

Understanding the Proposed Motor Finance Compensation Scheme

The Financial Conduct Authority (FCA) is set to launch a consultation on a proposed compensation scheme for customers possibly mis-sold motor finance agreements. This follows the FCA’s review which identified widespread failings in the motor finance market, specifically concerning discretionary commission allowances given to car dealers.This allowance, often undisclosed to customers, incentivized dealers to increase loan amounts, leading to higher interest charges and overall costs for borrowers. The consultation aims to determine the best way to provide redress to affected consumers. Motor finance complaints, PPI-style compensation, and car finance mis-selling are key terms driving searches around this issue.

What Went Wrong? Discretionary Commission Explained

For years, car dealerships were permitted a degree of adaptability in setting interest rates on hire purchase agreements (HP) and personal contract purchase (PCP) agreements. This flexibility came in the form of a discretionary commission allowance from the finance lender.

Here’s a breakdown of the issues:

Lack of Transparency: Customers were often unaware of this commission and how it impacted their loan rates.

Incentive for Higher Lending: The commission structure incentivized dealers to increase the amount borrowed, as their earnings were directly linked to the loan size.this meant customers could end up paying more interest overall.

Potential for Unfair Outcomes: Customers with strong credit scores may not have received the best possible rates, as dealers prioritized maximizing commission.

Widespread Practise: The FCA’s review revealed this practice was prevalent across numerous lenders and dealerships.

Who is Affected by the Motor Finance Mis-selling?

Millions of customers who took out car loans between January 2010 and the present day could be eligible for compensation. Specifically, those who financed vehicles through:

Hire Purchase (HP): Agreements where you own the vehicle outright after making all payments.

Personal Contract Purchase (PCP): Agreements offering the option to either purchase the vehicle at the end of the term or return it.

Personal Loan: Used specifically to finance a vehicle purchase.

The FCA estimates that over 1.1 million motor finance agreements may have been affected by this issue. Individuals who believe they were unfairly charged higher interest rates due to discretionary commission allowances should prepare to participate in the consultation and potential claims process. Car finance redress is a crucial aspect for affected consumers.

The FCA’s Proposed compensation Scheme: Key Details

The FCA is considering several options for the compensation scheme, including:

1. Firm-by-Firm Assessment: Each lender would be required to review its past sales and proactively compensate affected customers. This is a complex and potentially lengthy process.
2. Scheme-Based Approach: A centralized scheme managed by the FCA,potentially funded by the industry,to handle claims and distribute compensation. This is generally considered a faster and more efficient option.
3. Hybrid Model: A combination of both approaches, with some lenders assessed individually and others included in a broader scheme.

The consultation will seek feedback on these options, and also the scope of the scheme, eligibility criteria, and the methodology for calculating compensation amounts. FCA consultation motor finance is a vital search term for those wanting to stay informed.

How to prepare for the Consultation and Potential Claims

While the consultation is ongoing, here are steps you can take:

Gather Documentation: Locate your original motor finance agreement, any correspondence with the lender, and details of your vehicle purchase.

Review Your Agreement: Carefully examine your agreement for any mention of commission or incentives.

Check Your Credit Report: Ensure your credit report is accurate and up-to-date.

Stay Informed: Regularly check the FCA website (https://www.fca.org.uk/) for updates on the consultation and scheme details.

Consider Seeking Advice: If you are unsure about your eligibility or the claims process, consider seeking advice from a financial advisor or legal professional specializing in consumer credit.

Timeline and Next Steps

The FCA launched the consultation on August 3rd,2025,with a deadline for responses set for [Insert Date – approximately 6-8 weeks from launch]. Following the consultation period, the FCA will analyze the feedback received and announce its final decision on the compensation scheme. The scheme is expected to be operational by [Insert Estimated Date – allow several months after consultation closes]. Motor finance timeline and FCA redress scheme are significant search terms to monitor.

Real-World Impact: The PPI Comparison

This situation draws parallels to the Payment Protection Insurance (PPI) scandal, where millions of consumers were mis-sold unnecessary insurance policies. The PPI redress scheme, which concluded in 2019, resulted in over £38 billion in compensation being paid out. While the scale of the motor finance mis-selling may differ, the FCA is keen to ensure a fair and effective redress process for affected customers. The lessons learned from the PPI experience are likely to inform the design and implementation of the motor finance compensation scheme. PPI compensation serves as a useful benchmark for understanding the potential scope and cost of this new scheme.